The Knockoff Economy (28 page)

PAULIE
: The fuckin’ Italian people. How did we miss out on this?

PUSSY
: What?

PAULIE
: Fuckin’ espresso, cappuccino. We invented this shit and all these other cocksuckers are getting’ rich off it.

PUSSY
: Yeah, isn’t it amazing?

PAULIE
: And it’s not just the money. It’s a pride thing. All our food: pizza, calzone, buffalo mozzarell’, olive oil. These fucks had nothing. They ate pootsie before we gave them the gift of our cuisine. But this, this is the worst. This espresso shit.

PUSSY
: Take it easy.
⁷

Our legal system allows this kind of copying because the desire for free and full competition outweighs concerns about imitation. That is good for all of us, even if Italians (let alone Italian-Americans like us) might be better off if they possessed a monopoly on cappuccino.
⁸
As one court aptly put it, in our system “there exists a fundamental right to compete through imitation of a competitor’s product, which right can only be temporarily denied by the patent or copyright laws.”
⁹

Of course, between two cafés competing on the same gentrifying block and two films, or novels, or cancer-fighting drugs, there is a lot of space: our rules against copying, and what the law calls “unfair competition,” exist for good reason. The important point here is simply that copying and competition are two sides of a coin, and that makes the determination of the right set of rules about copying tricky. And when competition and creativity can co-exist with copying, it is best to leave well enough alone. That is a key message of this book: in a surprising number of innovative industries, competition, copying, and creativity all run together, and in this good news story our intellectual property system rightly stays out of the picture.

With this in mind, in this concluding chapter we draw together the various examples in this book to sketch out some broader patterns. What have we learned about the relationship between imitation and innovation? How do we explain the surprising creativity we have found? And are there tools or techniques that might help other industries stay competitive when confronted with copying?

Just because fashion, finance, or font design remain successful in the face of pervasive copying does not mean every creative industry can do so, and we want to acknowledge the variety of innovative fields forthrightly. Innovative industries vary in many ways, but one of the most consequential is in
the cost of creation. By “cost” we mean the expenses incurred in dreaming up something new and distributing it to consumers. Think of a blockbuster drug that requires armies of scientists to refine. These drugs can cost as much as $800 million to formulate and produce.
¹⁰
Or a blockbuster film, full of special effects and boldface names. James Cameron’s 3-D film
Avatar,
for instance, cost nearly $300 million to make and $100-$200 million to market.
¹¹
For both films and pharmaceuticals, the upfront costs of creation can be very high.

Other innovations are quite inexpensive, however. Musicians sometimes say that a lyric or chord change popped into their mind in a flash, and a few hours later they had a full-fledged song.
^*
Marcel Duchamp drew a moustache and beard on a found postcard of the Mona Lisa and,
et voila,
a Dada masterpiece was born. Even with less dramatic (or swift) inspiration, songs, stories, poems, and many artworks are comparatively cheap to produce. There is a continuum of innovation, in other words, that runs from very cheap to very expensive.

The creative industries we have explored in this book mostly fall at the low-cost end of the spectrum. Compared to new drugs, fashion designs are not especially costly to create; neither are new comedy routines, recipes, or football plays.
^*
Whatever lessons we draw from our case studies, consequently, can be applied to high-cost creations only with care. Nonetheless, even for high-cost industries there are useful lessons that can be gleaned. As is probably obvious to everyone reading this, moreover, the cost of innovation can be significantly affected by a vital phenomenon in the contemporary world: technology. (We’ll say more about this at the end of this chapter.) The cost of creation is an important factor to consider as we weigh the broader messages that emerge from our cases studies.

The basic point that we began this book with, however, remains: the traditional justification for IP rights—that copying kills creativity—cannot explain the surprisingly vital world of innovation we have detailed. And this has important ramifications elsewhere because, whether we like it or not, in many industries copying is here to stay. The increasing ease of copying has
been widely perceived as a crisis. Indeed, the former head of the Motion Picture Association of America (MPAA), Jack Valenti, who once likened the original videocassette recorder (VCR) to a rapist, would surely be turning over in his grave if he could see some of the most recent technologies used to pirate movies.
¹²
Yet Valenti was wrong about the VCR. Far from killing the industry through copying, the home movie rental business it spawned turned out to be very profitable.

We believe that there are ways to profit from today’s copying technologies as well. To do so we have to think about copying in a different light—not as a scourge to be eliminated but as a complex phenomenon that can help as much as harm. Ever-easier copying is only a crisis if our focus is solely to stop copying. If instead we focus—as we should—
on promoting innovation,
we quickly realize that there are many ways to do so, even in the face of copying.

We will go a step further: in some cases copying ought to be welcomed, not stopped. Imitation can fuel innovation, serve as a form of advertising for originals, spur more competitive markets, and lead to better, more valuable new creations. In short, as we have shown in a wide range of fields, creativity can persist even in the face of widespread copying. Indeed, in some instances creativity occurs
because
of copying. In the end, the basic message of this book is optimistic. We live in a world of ever-easier copying. Yet, in a surprising number of ways, creativity can survive and even thrive despite copying.

The creative industries we have explored clearly differ in important ways. Yet there are some cross-cutting features and lessons that merit special attention. We highlight six in this concluding chapter:

• Trends and fads
play a powerful role in several creative industries. In the fashion world and elsewhere, the dynamics spawned by trends can turn the conventional view of copying on its head.

• Other industries demonstrate the important role that
social norms
can play in constraining or shaping copying, even when legal actions prove impotent or impractical.

• In some industries creators and owners have blunted the negative effects of copying by redefining the good from
product into performance—
reducing the impact of copying on their economic success.

• Still other creative industries highlight the power of
open-source methods
to lower the costs of innovation—and thereby promote more of it.

• First-mover advantages
offer enough value to some producers that innovation is profitable, even if those innovations are later copied.

• Finally, several cases illustrate the power of brands and trademarks. Brands can limit the market share of copies, but
copies can also serve as advertisements for brands.
This effect casts the costs of copying in a very different light.

These six lessons are surely not the only ones that can be derived from our case studies. But we think these points are the most important and generalizable. Together, they show that markets like comedy and cuisine have more to teach us than we had realized. And, as we noted earlier, they suggest that the future of the ideas economy is not nearly as bleak as many believe.

Apparel is a global business (and for many, a global art form) with a huge economic impact. Despite the fashion industry’s size and cultural importance, its innovation practices have not been widely studied.
¹³
Yet the fashion world is full of important and interesting features. Maybe the most striking is the paradoxical effects of copying on creativity.

Copying in the fashion world has two unexpected effects, both of which make copying an essential partner to innovation, not an impediment. The first we have called
induced obsolescence.
New designs tend to spread from a small group of fashion followers to the larger mass of consumers. As these designs are copied and then spread throughout the marketplace, they lose their appeal for the earliest adopters. And as a design spreads further, it begins to tip over and, after reaching its peak, rapidly becomes obsolete. This in turn creates demand for new designs to take its place.

This is the familiar fashion cycle. Designs debut, diffuse, decline, and die. The special role of copying in this dynamic is that it accelerates the cycle, pushing the fashion-conscious to more rapidly drop their old look and find a new one. And that in turn incentivizes designers to create new looks. Copying, in short, spurs creativity as designers seek to offer newer, fresher designs to replace those that have saturated the market.

The second important effect is
anchoring.
Fashion is ruled by trends, and trends are made by copying. Trends give consumers important information: they tell us what to wear if we want to remain in style. Trends also make it easier for designers and manufacturers to know what will sell, and to design accordingly. Trends, in short, are a coordination mechanism. They make it possible for many individuals to jump on the same bandwagon—until, by doing so, the trend eventually withers and is supplanted by a new trend.

Together, these two effects help explain what we call the
piracy paradox.
Copying helps, rather than harms, creativity in the fashion world. The piracy paradox, which reflects the fundamentally social nature of fashion, is a powerful reason the apparel industry has remained so creative despite rampant and open copying. There are, of course, limitations to the scope of innovation we see in fashion—clothes do have to fit the human body.
^*
But there is nonetheless a vibrant range of creative designs put forward every season and indeed every week. The paradoxically positive effects of copying help explain how this level of creativity—and commercial success—is possible: by rapidly diffusing a design, copying actually stimulates demand for the next design.

Again, our point is not that there is a fashion cycle: that has been known since Shakespeare’s time.
^*
It is that this cycle turns
even more rapidly
in a world of free and legal copying. And this is true because of a key feature of apparel: the consumption of fashion is a public act, not a private one. Fashion, because it is worn and can be seen by others, sends signals about the wearer. Some people, usually the early adopters of new designs, like to signal that they are different, and perhaps trailblazers; others (certainly a larger group) flock to what seems safe and accepted.
¹⁴
Given a mix of flockers and differentiators, copying will lead to more rapid change in what is coveted—and that, in a competitive market economy, will lead to more rapid innovation as entrepreneurs seek to supply the new, new thing.

The fundamental dynamic of the piracy paradox is central to understanding how the apparel industry remains so successful in the face of copying. But it has broader implications. Fads and fashions are not limited to clothing; they are present in many pursuits that are social in nature and visible to others—in other words, in which consumption is
external and expressive
.
From movies about vampires to soccer fans blowing vuvuzelas, fads come and go, and have done so for centuries if not millennia. While we hesitate to say that copying is essential to the creation of fads, it does seem intrinsic to many fads. Most fads require multiple versions of a central idea—often, it’s only when we see many imitators jumping in that we know a particular idea has tipped over into a full-blown fad.
¹⁵
And just as copying helps to mark fads, and then to inflate them, it also plays a central role in their demise. When a fad grows too large and too prevalent, it fades, often more rapidly than it arose.

To be sure, many differences exist among trends and fads. Our goal is simply to point out the central tendency and to note that, as in the fashion world itself, copying can serve to both grow and, ultimately, to kill a fad. That dynamic creates opportunity for entrepreneurs. But it also yields a powerful spur to creativity—one that has nothing to do with conventional justifications of IP nor with conventional fears of copying.

We have seen fads at work, for example, in the creation of new fonts. Typeface designs catch on, close copies proliferate, and then, when the look has saturated the marketplace, the font world begins seeking the next design trend. The result is a proliferation of new fonts in a world that offers very little protection against copying. Because fonts are less easily noticed, and less personal a source of expression (though any author or wedding-invitation-sender knows that picking the right font is important), typeface trends come and go much less quickly than in fashion. But the fact remains that fonts are often external and expressive, and unsurprisingly they have fads too. Copying enables those fads to spread and, ultimately, to wither—leading to a need for newer and fresher font designs.

The food world exhibits fads as well, and here too the ability to copy spurs creativity. Some food fashions are general—small plates, nose-to-tail eating—whereas others are specific to certain techniques (think
sous-vide),
tools (the $4,000 Pacojet ice cream maker), ingredients (bacon, fennel pollen), or genres (pie, or earlier, cupcakes). As in fashion and fonts, food trends spread because copying is easy and legal. As we described in
Chapter 2
, the same is even true of specific dishes, some of which, like the molten chocolate cake pioneered by Jean-Georges Vongerichten, are now ubiquitous. The freedom to copy allows trends and fads to spread quickly. But in turn it prompts creative chefs to seek new and distinguishing dishes, techniques, or ingredients. The culinary world is not nearly as faddish as the fashion world, and as we described, the mechanisms of creativity are a bit different. But there are
important overlaps, and food, like fonts and fashion, illustrates that the dynamic of copy-induced creativity is present in many areas.